<article>The keen interest that Vietnam has attracted from investors over the last year could very well turn out to be a double-edged sword.</article>

The keen interest that Vietnam has attracted from investors over the last year could very well turn out to be a double-edged sword.
For one, Vietnam as an emerging market, the majority of the companies, particularly in the tech space that investors are so enamoured of, are still early-stage businesses. As investors, seeking early-mover advantages, piled into the opportunities, the influx of capital has raised valuations and expectations.
The average deal size, especially in the category of $5-10 million deals, has increased significantly since 2018, according to a report on the country’s VC investment landscape by Cento Ventures and ESP Capital.
Seed to Series A funding rounds into Vietnamese startups in 2019 hit as high as eight-digit US dollar figures. And many of these startups, frankly, do not quite have the business models that warrant such valuations.
During the year, companies in sectors such as real estate listings, classifieds and food media announced bigger ticket-sized rounds in the seed-Series A stage compared to the $500,000-$6 million range in previous years. Take, for instance, proptech company <a href="https://www.dealstreetasia.com/stories/gec-kip-fund-rever-152573/">Rever </a>that secured $6.3 million in its seed financing while rival <a href="https://www.dealstreetasia.com/stories/proptech-startup-propzy-series-b-149055/">Propzy</a>, which is in the Series A stage, raised $12 million in total by 2019. <a href="https://www.dealstreetasia.com/stories/lozi-pouchnation-thaiticketmajor-160256/">Lozi</a>, which started out as a food media startup, recently snagged an eight-digit Series A round.
These companies currently operate in Vietnam and their solutions are not yet competitive enough to expand into other countries. While local funds claim the larger funding rounds reflect a truer valuation of Vietnamese companies, regional funds think these [assets] are over-valued.
This trend has led other investors to turn cautious. Now some regional venture capitalists are decrying the valuations and pointing out that startups are going to face difficulties when they set out to raise subsequent rounds.
To them, Vietnamese startups need to rapidly expand into other regions to be worthy of earning such valuations. “They (Vietnamese companies) cannot forever claim that high valuations are still working in Indonesia, where startups mostly operate domestically. Indonesia is a very big market,” one Singapore-based VC told DealStreetAsia.
Amid a sharp focus on tech startups, investors seem to be finding it hard to pursue bets even in the slightly more established corporate ecosystem in Vietnam.
In the private equity space, mid-sized funds are finding it challenging to source deals in the small to medium enterprises segment. For transactions valued in the $5-35 million range, there were eight deals in 2019, down from 11 in 2018; two of those eight, we understand, were completed in 2018.
2020 appears to be a challenging year for country-focused funds, which typically seek mid-sized deals. <a href="https://www.dealstreetasia.com/tag/mekong-capital/">Mekong Capital</a> is raising a $200-million fund &#8211; its largest vehicle, but spotting the “next MobileWorld Group” [a past portfolio company generating a 57x return for the firm] will not be easy.
<a href="https://www.dealstreetasia.com/tag/vinacapital/">VinaCapital</a>, a multi-asset-class manager that revealed a $626-million PE pipeline, has only sporadically announced its deals &#8211; the last one being an investment in local packaging firm Ngoc Nghia, in October 2019.
Like all emerging economies, Vietnam&#8217;s continued growth depends on a good spread of SMEs, whose existence is, in turn, dependent on access to capital. Just as well then, as investors become more discerning, only the fittest of businesses will survive.
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Vietnam as an emerging market, average deal size, especially in the category of $5-10 million deals, has increased significantly since 2018.

Vietnam 2020: Soaring valuations, weak SME deal flow may cloud prospects

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